Banks that grow too fast by pumping up lending are a cause for concern. The same holds true for insurance companies, and few are as guilty as those in China.

In recent years, many have expanded by selling products that, rather than focusing on protection, appeal to savers disgruntled with low interest rates. Anbang, which abruptly withdrew from its eye-popping $14 billion play for Starwood Hotels in April, is just one example. It makes the bulk of its premium income from short-term policies more akin to wealth-management products. The regulator is starting to crack down, with financial news website Caixin reporting earlier this month that accounting experts were sent to Funde Sino Life after the detention of its former chairman drew scrutiny regarding its investments.

Insurance premiums outstanding in China

$244 billion

Such antics are starting to take their toll. A Bloomberg-compiled index of Hong Kong-traded shares of Chinese insurance companies is down about 46 percent over the past 12 months. Regardless, most insurers still trade above their price-to-book value, an indication that investors believe in the quality of their assets more than those of debt-laden Chinese banks.

Holding Higher

Chinese insurers are trading at a low price-to-book value, but still above their bank peers

That's the case even though life insurers, according to McKinsey, have consistently delivered returns for investors that are below their cost of capital over a 10-year period.

Erratic

Chinese insurers have on the whole delivered returns for investors that are below their cost of capital

Source: China Insurance Yearbook; McKinsey

It's not to say the prospects for Chinese insurance companies aren't good. China's population is aging, and coupled with government tax breaks for annuity products, demand for retirement-income products will likely be buoyant. Lack of a comprehensive healthcare system is also forcing more people to purchase medical cover, with premiums expected to continue their double-digit pace of growth after increasing 20 percent every year from 2007 to 2013, according to McKinsey. In April, total premiums outstanding were 1.6 trillion yuan ($244 billion), up more than 90 percent from a year earlier, China Insurance Regulatory Commission data show.

But like Chinese banks, insurers are notorious for their lack of transparency, and that can mask a host of issues. There's little consistency in how they book investment gains and their accounting practices are complex, to say the least.

Equity investments must be valued at market price, unless the interest is classed as one in an associate company, which is how many insurers classify their property acquisitions. Those investments are accounted for at cost, according to Morgan Stanley. Most banking stakes are also carried at one times book value, above the about 0.7 times level at which China's banks are trading.

The way bonds are valued also varies. China Life reports about half of its note investments at cost, and the remainder at market value.

Some reforms have been made. In March, regulators moved toward adopting Western-style solvency rules that would force insurers to set aside bigger capital cushions to reflect their riskier investments.

Ultimately, the big, state-owned insurers with strong balance sheets should be fine. But investors might want to temper their enthusiasm for the sector as a whole and start getting more selective.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

As measured by return on equity.

Of that, univeral premiums accounted for 597 billion yuan, or about 37 percent. Universal life products are like wealth management offerings that combine a death benefit with a guaranteed payout.